This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
After more than a year of whining about my undercapitalization, I have left Zecco as my broker. They were great for me while I was learning how not to blow up my account, and I recommend their service to any new traders. Do yourself a favor and start small with zero commissions! Just learn position sizing and expectancy before you trade a singe dollar.
So what am I doing now? I am now a prop trader! (Well, almost. I’ll be starting up this week.) No more pattern daytrader restrictions for me! This is the main reason why I joined. I have my same tiny equity stake, but I have a bunch of intraday buying power, about 25:1 leverage on my initial capital. I don’t expect to ever use that much, but it’s there. I plan on starting small, taking positions in the tens of shares, risking no more than 1% of my equity including commissions. This will take the pressure off of me to keep a trade that’s not acting as expected. I don’t need to hold out anymore, hoping to not “waste” a daytrade, as I can always move on to the next opportunity. My commission structure is per-share, so between that and no more daytrade restrictions I now plan to partial out of positions, leaving the rest to ride if a trend really takes off (as MA did the other day).
My goal is to consistently trade well, and be net profitable. I’ll leave aggressive equity growth for a later time. I’m still trading part-time, so my market participation will be sporadic. I don’t want to publicize the outfit I’m with, so I won’t go into that. However, I don’t mind answering any general questions anybody may have.
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
July 17th, 2007 at 12:15 pm
which prop. firm did you join?
July 17th, 2007 at 12:17 pm
Good luck with the prop firm. Are they giving 25:1 for daytrading only or do they let you hold anything overnight?
July 17th, 2007 at 1:44 pm
@Gilad: I don’t want to divulge that or publicize the firm without permission, so I won’t answer you on that one. Sorry! If someone is considering joining a firm, I can offer my $0.02 on what to look out for and what terms of a deal would be fair–just reply in the comments.
@Bubs: The 25:1 is intraday, and it’s 2:1 overnight. I won’t ever use the overnight power, since I could do that with Zecco with the same margin for 0 commission. My whole purpose is to be free of PDT restrictions, and those only apply to intraday trading. If the dang SEC didn’t have the rule, I’d still be at Zecco. So much for protecting the small investor :-P
July 17th, 2007 at 2:49 pm
I’m very happy for you! What a big step up! But I’m also surprised that a prop firm would be interested if they knew you planned to trade 10s of shares. Is there some expectation that you’ll stay with them and ramp the size and frequency up over time?
I take it they aren’t restricting your trading style, but are making you use their platform? Or? If so, does their platform function at your day job? Or are you trading at one of their offices?
Why is it that everyone who’s at a prop firm is always so quiet about it? Is there some sort of law, or something? That part just confuses the heck out of me, but it’s not just you that does that. Why?
July 17th, 2007 at 5:49 pm
Congrats Prospectus!
Same question as Richard re: 10s of shares or will it be 100s of shares of stocks
July 17th, 2007 at 6:24 pm
Congrats!
July 18th, 2007 at 12:30 pm
@Richard: Thanks! Let me tell you, I was as surprised as you are that they would consider me! I was very up front with them about what my needs were and my smaller-than-standard capital deposit, that I had my own style, and that I needed freedom from daytrading restrictions more than big buying power or software or anything else. They were willing to help me out. Also, due to my small equity base, I couldn’t be paying $100’s of dollars every month for a platform (that gets blocked by firewalls anyway-I’m trading remote). So they have a web-based platform that’s free to use, and my only expense is my per-share commissions, including liquidity rebates / charges. It’s an incredible dream come true for me!
As far as what’s in it for them, maybe they are hoping that I’ll move up to larger sizes and frequencies, but that wasn’t any kind of condition of the arrangement. I got extremely generous terms in my contract, and I’m very thankful. I hope to be able to trade larger and larger with them for a long time to come. When someone does something like this for you, it fosters a loyalty that a sweeter deal somewhere else can’t break. Maybe that’s their angle. I find, especially in the blogging community, that many traders genuinely want to help others succeed. I’m lucky to have found a firm like that. :)
I don’t think that there is any kind of law or anything, and the more secretive a firm tries to be the more I’d be suspicious. I’m just respecting their privacy until I find out if it’s needed or not–just my preference. If I get an okay from them, I’ll be sure to objectively review them, as I did with Zecco while I traded there.
July 18th, 2007 at 12:58 pm
Hi Prospectus,
I’m considering joining a prop firm. I’ve came across several seemingly conflicting advices on elitetrader site. Lots of people regretted joining their first prop firm. The firms didn’t lie, they just didn’t provide all sufficient information, since the beginners didn’t know what to ask or look for.
If you don’t mind, could you please share some of your general experiences: what to look for, what kind of questions should I ask, what is a fair deal, or what kind of experience the firms require, etc.
Thank you very much for your time and help.
Regards,
Tom
July 18th, 2007 at 3:12 pm
Prospectus,
Congrats! I’ve worked at a prop firm for the last 8 years. They have their ups and downs, I’ve been with 3 in that time.
So all you’re paying them is commissions? Are they also keeping a percentage of what you make? Are you only responsible for the equity you put up or if somehow you “blow up” will you be responsible for the money you lose?
Good luck with it. I’ll be interested to see if it changes your style at all but since you’ll be trading remotely, I don’t expect it will much.
-DT
July 18th, 2007 at 7:58 pm
@Tom: Not a problem at all! I love helping others as much as I love to get help (maybe more; I’m weird).
For the most part, whether a particular firm is right for you depends a lot on your trading style and primary timeframe. What works for me wouldn’t work for a scalper turning 100 trades a day. In that sense, you have to judge the firm’s trading offerings by how and what you want to trade. There really is no reason to go prop, IMO, unless you need more buying power, access to capital, training or support, or high-powered trading technology. You can get a better setup in the retail world without any strings attached if you’re someone like a Trader Mike. I’m not, so I go prop!
However, in my (limited) experience, there are a few standard parts to a prop deal to be aware of:
1) Initial capital contribution
Typical minimum is $5000 (I put up much less). In general, the less you put down, the worse your payout structure or other terms will be. I’ve heard of zero down deals, but I’d be suspicious of that–watch for other ways that they might try to cash in on you, like high commissions / fees. Could happen, but beware. Unless you’re really being “hired” to trade a firm’s money, your capital is your only equity, and any losses you take come out of that money.
2) Payout Ratio
The fraction of your profits that you get to keep (you are almost always responsible for 100% of your losses). This is why you trade! If you put the $5000 down, and are an experienced trader at all, I wouldn’t touch a deal that didn’t give you a 100% payout–they are robbing you if you do. That’s what I got, and frankly I was shocked. I was expecting 80% or something being a small-dollar first time prop-trader!
3) Desk Fees / Software fees
Many times you have to trade through a firm’s particular platform, and these can have monthly fees in the 100’s of dollars. Depending on your capitalization level, that can break you. My firm has a pimped out, fast software-based platform with big fees and a free web-based no frills platform. No prob, I’ve dealt with Zecco’s for the last 8 months! Some may charge a desk fee, epecially if you trade from an office (covers the overhead). I don’t have one trading remote.
4) Commissions
If your commissions are much higher than those of direct access brokers like IB or MB Trading, you’re being taken. $0.005 / per share ($5 / 1000 shares) is a fair deal. Firms will often pass through the remove liquidity charge ($0.003 / share) to you, and some will let you keep the add liquidity rebate ($0.002 / share). I don’t have a ticket charge, so if I trade 10 shares round trip, I pay $0.16. Word.
5) Additional capital contributions / liability
My contract states that no additional capital will be required, which I take to mean that if I blow my money, I’m only out my contribution (I should verify that!). Some firms will hold you to a loss, even if it exceeds your capital. I’m not worried about that, since that’s way beyond any risk I would take on. However, there’s also a clause in my contract that says that if my positions ever draw my capital down to $500, they’ll liquidate all my holdings. That makes sense to me! I also have a max holding limit of 1000 shares, another prudent move on their part. I imagine that could be raised as I prove myself.
As far as what to ask, ask about all of these terms. Be up front and open about your needs and limitations, and expect them to be up front with what they are looking for. That’s the only way to find a good match, both for them and for you.
The best way to get in is through a personal referral. Barring that, Dr. Brett wrote a good article on the subject recently on Traderfeed. If you know trading, it will show when you talk to them, and you shouldn’t have a problem getting in.
That’s about all I can think of for right now. If I didn’t answer all your questions, feel free to post more!
July 19th, 2007 at 9:40 am
Hi Prospectus,
I’m curious did they ask about your track record? How and did they review your trading history?
Thanks for all the information so far!
July 19th, 2007 at 9:53 am
Prospectus,
Thanks for the information. That would be great if you ONLY responsible for the money you deposited. This will protect you from a black swan event. Do they require to keep certain amount of profit in the account or you can take all the profit out?
July 19th, 2007 at 10:08 am
I have no idea what they do, but if I were them, I’d auto-close positions when they begin violate margin reqs. This would pretty much ensure (except for a weird case) that the trader never loses more money than they had. I mean, as the trader’s equity drops to $1, their buying power drops to $25… so closing positions in lieu of margin calls makes sense to me. The issue about who’s responsible for additional losses would never come up.
July 19th, 2007 at 10:26 am
Richard,
Theoretically it is possible that a stock moves too fast against you due to a totally unthinkable event that you may have a massive slippage after your stop has been executed. You may owe much more money than you deposited given the 1:25 leaverage. It is a VERY VERY RARE event but you cannot say it will never happen. I guess in that event the prop firm will eat the loss as a cost of doing the business.
July 19th, 2007 at 10:36 am
@Dino, Hennessy and WL: I’ve got those questions in to my contact at the firm, and I’ll answer your questions when I hear back from them.
July 19th, 2007 at 12:58 pm
@Everybody: Okay, I just put up a post with the firm’s name and all the details: http://www.movethemarkets.com/blog/2007/07/19/the-secrets-out-details-on-my-prop-trading-firm/
July 19th, 2007 at 2:47 pm
@WL: yeah, did you not see where I said “except for a weird case”? That’s to cover the weird case you’re talking about… and also is very different than me saying it could never happen (which I didn’t)
July 19th, 2007 at 3:08 pm
@Richard: Well, you did say the issue of additional losses would never come up…
July 19th, 2007 at 3:18 pm
Hi Prospectus,
Thank you for the detailed information. Your help is much appreciated.
Tom
July 19th, 2007 at 3:38 pm
@Prospectus: I said the issue of who was responsible would never come up, not the losses themselves. Did everyone spontaneously forget how to read? :-)
July 19th, 2007 at 3:45 pm
No, not spontaneously. The internets have been killing my ability to focus for some time now. Your post was pretty long, so I just skimmed it. ;)
November 27th, 2007 at 1:51 am
Prospectus- is Remata living up to their promises ?
I’m looking for a firm just like that….
Thanks,
Daryle
November 27th, 2007 at 8:51 am
Daryle:
Yes, they have. Remata is great. I recommend them to anyone seeking a prop firm, as long as the deal and trading setup works for your style. Nothing is one size fits all, but the deal is fair and the people are good.
As far as the free web platform goes, that has taken a disappointing turn, but it’s not Remata’s fault, as it is provided by another firm (Solaris Securities) through another provider’s gateway (Orbisfn). Complicated, but the bottom line is that there is now a $1 minimum on web-based orders. So I don’t have $0.10 commissions for trading 10 shares anymore. Also, DO NOT trade outside of market hours with this platform. They shut down their order server at 5:00 ET and your orders will be in limbo. Other than that, it works fine, fills and execution are good.
So yes, Remata is awesome, and I still trade through them. Send me an email prospectus at movethemarkets.com if you want more info.